Emphasis on Tentative
Key Points:
Oil prices soared once again as Iran and the United States renewed hostilities despite signing an agreement in June to work towards a lasting solution
Inflation fell to 3.8% in the June quarter as petrol prices eased, however underlying inflation remains elevated and persistently above the Reserve Bank of Australia’s target band
The S&P/ASX 200 outperformed developed markets, delivering a 2.3% return in July
In our June newsletter titled Tentative Peace, we warned that hostilities between the US and Iran remained a live possibility:
“Although commodity markets have largely priced in a lasting easing of the conflict, negotiations remain vulnerable to setbacks”.
Those setbacks came quickly. On July 7, Congress was notified that hostilities had resumed.
Oil prices spiked briefly above US$90 a barrel before settling around US$84. For context, oil traded around US$60 before the conflict.
There appears to be little prospect of an immediate ceasefire or return to negotiations. Equity markets have increasingly shrugged off the conflict, but fixed-income markets have been more cautious. Bond yields rose in July as investors priced in the risk that higher energy prices could add to inflationary pressures and keep interest rates higher for longer.
At the same time, investors appear to be demanding a greater risk premium in response to heightened geopolitical uncertainty across Iran, Ukraine and other regional conflicts.
Australia proved a relative safe haven in July. The S&P/ASX 200 benefited from higher energy prices and softer-than-expected headline inflation.
However, investors should remain cautious. Underlying inflation has remained above the Reserve Bank of Australia’s target band since September 2025, meaning the central bank may need to raise rates further should higher energy prices generate further inflationary pressure.
Please click here to read our June 2026 markets report as a PDF.
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